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Sterling Vs Australian Dollar Rises, on Chinese Coronavirus

Market CommentarySterling Vs Australian Dollar Rises, on Chinese Coronavirus
Sterling Vs Australian Dollar Rises, on Chinese Coronavirus

The pound to Australian dollar interbank exchange rate stands at 1.8989 today. By comparison, yesterday sterling was as weak as 1.8861 versus the so-called Aussie, so it’s since strengthened by 0.68%, or by over 1.25 cents.

The GBP to AUD interbank exchange rate has strengthened overnight, in part because there have been reports of a new coronavirus in China, Australia’s closest trading partner.

To explain, 200 cases of a coronavirus, the same type as the SARS that killed over 700 people in 2003, have been detected in the city of Wuhan, some 700 miles south of Beijing. Apparently, the cases relate to people who visited an animal and seafood market in the city.

This has weakened the Australian dollar, first because if the virus spreads, it could affect China’s economy, thereby lowering China’s demand for Australia’s exports.

Second, if China decides to impose a quarantine on external travel while it resolves the coronavirus, fewer Chinese tourists might visit Australia this year, thus weakening Australia’s economy too.

GBP to AUD Rate Might Be Affected, by UK PMIs This Week

However, looking ahead, the sterling vs Australian dollar interbank exchange rate might be affected, by the release of IHS Markit’s UK PMIs (Purchasing Managers’ Indices) for January, this Friday 24th at 09.30 GMT.

These “flash” PMIs will measure activity in the UK’s vast services and manufacturing sectors, and it’s hoped that business has picked up, following the decisive general election result last month.

In particular, it’s forecast that UK services activity increased to 51.1 this month, above the 50.0 figure that signals growth, while British manufacturing is predicted to rise to 48.8, from November’s 47.5.

If so, this could alleviate concerns over the UK economy, following November’s 0.3% fall in GDP (Gross Domestic Product), as well as December’s surprising fall in retail sales.

For example, Samuel Tombs, Chief U.K. Economist at Pantheon Macroeconomics, says that "December’s fall in retail sales volumes comes as a major shock and suggests that consumers retrenched severely at the end of last year amid heightened political uncertainty." So the PMIs this Friday could affect the value of sterling.

Pound to Australian Dollar Rate Could Be Influenced by BoE Decision

In particular, depending on the results of the UK PMIs this Friday, the Bank of England could feel more or less inclined to cut interest rates from their current 0.75%.

In the past week and a half, four members of the BoE’s nine-person Monetary Policy Committee (MPC) have made comments, suggesting that unless the UK economy picks up in early 2020, they could vote to reduce borrowing costs.

For example, BoE Governor Mark Carney told a Research Workshop on Thursday 9th that, unless UK economic activity expands, this could prompt a “relatively prompt response” from the central bank.

This would be to cut the cost of a loan in the UK, and thereby support the economy, yet lower interest rates traditionally tend to weaken the pound.

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Please bear in mind, this article is Pure FX’s opinion only and does not constitute advice. Moreover, the exchange rates referred to in this article are the interbank rates, which are the rates at which banks and financial institutions buy and sell currency to each other. Therefore these exchange rates cannot be accessed by individuals or SMEs, and are not the same rates that Pure FX can offer. To get a free exchange rate quote, call us on +44 (0) 1494 671800, or Contact Us.

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